Of the three people of Italian descent invited to the virtual meeting, I was the first to turn up - impressive, considering that the other two work for a Swiss bank.

Even after the stragglers - Sergio Ermotti, chief executive of UBS, and Andrea Orcel, the head of its investment bank - arrived and the teleconference began, the conversation centered on timing.

"Why now?" I asked from New York as Ermotti gave a wry smile from Zurich and Orcel looked on from his BlackBerry in Connecticut. Why did UBS announce that it was cutting off a limb?

Two weeks ago, UBS said it would shut down a large part of its investment bank, largely in the fixed income, currency and commodity unit known as FICC, and cut 10,000 jobs and a huge slab of its balance sheet over the next five years.

The drastic restructuring should enable UBS to focus on its private bank and other activities that don't require as much capital, such as equity trading and advising on deals.

"I can't remember a more dramatic overhaul of an investment bank in 'peace time,' meaning not due to a crisis or a merger," said a top executive at a UBS rival.

So why now? Ermotti's answer was disarmingly simple: "We don't have the goodwill from our shareholders to continue throwing money away into something that doesn't cover its cost of capital."

In other words they won't make enough money in those businesses to justify keeping the lights on.

UBS's move is a sign that the tectonic shifts caused by the financial crisis are causing tremors throughout global banking. For decades, Wall Street has lived by the credo: "You can't shrink your way to growth." Helped by cheap money, stable economies and accommodating regulations, banks grew bigger and more diversified.

Not even the financial crisis changed that. In fact, governments in the US and in Europe made healthier banks bigger by facilitating their purchases of weakened rivals. The result: a small group of large banks that did a lot of the same things.

UBS's move is an emphatic statement that the paradigm should be reversed. Businesses that can't fund themselves will no longer be subsidised by better performing ones, workforces will be reduced and balance sheets pruned.

The question is whether other banks will refocus on areas where they have an inherent advantage. The answer is almost certainly "yes but. . . ."

"Yes" because of three factors: the need to boost low returns for long suffering shareholders, tougher capital rules and a sluggish global economy. As Citigroup analyst Keith Horowitz says, "The new world is going to force banks to decide which businesses are hobbies and which ones are serious businesses."

But not every bank will rush to shrink like UBS. For a start, UBS's woes - huge losses and a government bailout during the crisis, a subsequent trading scandal, a subdued share price - put extraordinary pressure on Ermotti.

Second, the Swiss group had an easy restructuring path because of a clear comparative advantage in its wealth management unit, coupled with its underperformance in FICC.

Orcel called the overhaul "a no-brainer."

Not so for giant fixed income houses such as JP Morgan and Goldman Sachs. They are making good money in those businesses and could benefit from UBS's withdrawal. FICC will account for more than half of global investment banking revenue next year and will expand much faster than other activities, according to Morgan Stanley.

Third, many banks are engaging in regulatory arbitrage, refusing to change course until they see the whites of regulators' eyes and new rules are actually implemented.

And finally, it is unclear whether corporate and individual clients will take to shopping around for different providers of loans, stocks and bonds after for years being sold the benefits of one stop banking behemoths.

Orcel maintains that clients don't "bundle" and that good bankers bearing good advice will win out, even without a full suite of services.

He is about to find out whether his hunch is right. As for the rest of the industry and its investors, the pressure to do away with the giant monolithic institutions of the past is building. Watch out for eruptions.

Francesco Guerrera is The Wall Street Journal's Money & Investing editor. Write to him at: currentaccount@wsj.com and follow him on Twitter: @guerreraf72.